Today we report on the IR35 debacle where the taxman hardly collects any money at all from he much fought over IR35 tax.
Despite all the hoo hah and the debates and court cases on IR35 since its inception in 1999, HMRC have admitted that they only took in £430,000 last year in IR35 Tax. That’s less than half the £1.1m they took last year.
Indeed, since its inception, in 1999, HMRC have only managed to take in less than £16m in IR35 Tax.
That’s a drop in the ocean of all taxes taken in! It’s a real IR35 debacle.
IR35 Compliance Officers
They must have spent a lot more on hiring IR35 Compliance Officers and in enforcing it. Indeed they hired an extra 36 Compliance Officers specifically with the job of enforcing IR35.
HMRC won most of the battles against contractors group IPSE in the High Court. However, they lost hundreds of little ground skirmishes at Special Commissioner and General Commissioner level.
As a result, few pay the tax. Indeed, few ever did. They didn’t want to be part of this IR35 debacle.
Flexible Contractors and Accountants
Contractor and their accountants, with the help of IPSE, are extremely flexible and can tailor their contracts and working practices to stay outside IR35. They are far more nimble than HMRC, the Treasury and the Government.
This fall in revenues is despite Chancellor George Osborne gobsmacking contractors by saying he would strengthen IR35. He, and the Conservatives, prior to the election, had given nods and winks to contractors and their representatives that they would abolish IR35.
They said that they would look at IR35 again if they got elected. They did get elected and they did look at it – and decided to keep it.
From Umbrella Companies to Limited Companies
The reasoning was that, if they abolished IR35, contractors would dump their Umbrella Companies and go back to Limited Companies again.
Of course they would. However, that was just as obvious before the election.
Another IR35 Debacle
There will be the same effect if the Government and Labour Party abolish the right to claim travel and subsistence against tax as Umbrella Companies contractors do now. Indeed that is what is going to happn from April this year.
Some contractors stay in Umbrella Companies for convenience sake and the minor tax breaks. It will no longer be convenient if the tax breaks are taken away.
Then, HMRC and the Government could watch as contractors dump their umbrella companies and use Limited Companies, where they can offset a lot of expenses against tax.
The Government will be playing with fire by touching Umbrella Company Expenses.
They would miss the bulky monthly PAYE and NI bounties sent to them every month by several hundred umbrella companies.
Instead, they would have to wait till the end of the year to get it from hundreds of thousands of new Limited Company contractors.
You would think that they would rather deal with, and regulate, a few hundred umbrella companies than 200,000 ex-umbrella company contractors.
But, you don’t have to be bright to go into politics.
I don’t know about now but, in my time, a Degree in politics was looked on as a Micky Mouse degree.
Actually Mickey wouldn’t have been seen dead with one.
This IR35 debacle will play and play.
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